Market Timing: A Decomposition of Mutual Fund Returns
AbstractWe decompose the conditional expected mutual fund return in ve parts.Two parts, selectivity and expert market timing, can be attributed to manager skill, and three to variation in market exposure that can be achieved by private investors as well.The dynamic model that we use to estimate the relative importance of the components in the decomposition is a generalization of the performance evaluation models by Lockwood and Kadiyala (1988) and Ferson and Schadt (1996).We nd that the restrictions imposed in existing models may lead to di¤erent inferences about manager selectivity and timing skill.The results from our sample of 78 asset allocation mutual funds indicate that several funds exhibit significant expert market timing, but for most funds variation in market exposures does not yield any economically signi cant return.Funds with high turnover and expense ratios are associated with managers with better skills.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2003-95.
Date of creation: 2003
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Web page: http://center.uvt.nl
mutual funds; performance evaluation; markets; models;
Other versions of this item:
- Swinkels, L.A.P. & van der Sluis, P.J. & Verbeek, M.J.C.M., 2003. "Market timing: A decomposition of mutual fund returns," ERIM Report Series Research in Management ERS-2003-074-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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- Goetzmann, William N. & Ingersoll, Jonathan & Ivković, Zoran, 2000.
"Monthly Measurement of Daily Timers,"
Journal of Financial and Quantitative Analysis,
Cambridge University Press, vol. 35(03), pages 257-290, September.
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